Simple, Sensible Pricing

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Simple, Sensible Pricing

Having recently bought my first cellular phone, I am astounded by the roaming charges I'm asked to pay. I can't believe it costs more to use my phone the farther I get from home. It's like charging me more to use a pay phone in Chicago than to use a pay phone in my hometown, San Diego.

It's time for telecom service providers to implement the same simple pricing plan adopted by pioneers such as Steve Case at America Online. There should be a single per-minute rate for air time. One that does not vary by time of day, bandwidth of channel, or location of body. And there should be a single, low monthly fee that includes all the most popular features, including voicemail and a personal number.

Delivering a reasonable pricing structure means mediating two opposing forces - sensibility and simplicity. Sensibility means charging for everything it costs the company to provide and everything customers find valuable. Simplicity means putting all of these sensible charges into a single, easy-to-understand package.

Carriers most often forget simplicity. Lazy service providers present their customers with a menu of features and say, "Take what you like and pay for it at the door." This, sometimes called unbundling, is supposed to emancipate the subscriber. Bull. It's called sloth, and it forces subscribers to waste valuable time figuring out what they really need.

Part of the price advantage enjoyed by Japanese automakers in the '80s came from their employment of "standard" option packages. These packages covered the two or three most popular configurations rather than the expensive-to-administer à la carte pricing of American manufacturers. The result was a total of 30 possible packages for Toyota versus 56,000 for General Motors. This trade-off between variety and simplicity has not disappeared just because we are dealing with bits instead of atoms.

A research report commissioned by one new wireless carrier concludes, "Customers of existing cellular companies are confused, and they report feelings of anxiety from constantly wondering if they are on the right pricing plan."

A confused and anxious cellular customer is one who will switch rather than fight - to the tune of a 2.1 percent monthly customer turnover rate in 1994. Bespectacled business school graduates will tell you this turnover results from the low costs of switching. But it comes from a lack of trust.

Charging customers on a per-item basis creates a transaction-oriented culture. Deliver a service, charge for that service. But charging a simple monthly fee with a simple air-time charge results in a relationship-oriented culture. It is a tacit admission by the service provider that sometimes its revenues will be too low for the service provided and sometimes they will be too high, but in the long term, it will balance out. That is what relationships are about, and that is what trust is about.

"We plan to use simplified pricing structures to build and hold client trust," says Wade Oosterman, marketing vice president for the new Canadian wireless carrier Clearnet, "allowing us to decrease turnover, which has historically driven up the costs of providing wireless service." Lower costs for wireless carriers will mean lower prices for consumers.

And there is another benefit. All-inclusive pricing tends to promote the use of the good being sold. This was true in the case of America Online's "free" e-mail service versus CompuServe's old 10-cents-a-message pricing, and it is true for cellular air time. Simplified pricing means increased usage. And increased usage means increased market share.

It is time to implement simple, sensible telecom pricing: a single air-time rate and a single all-inclusive monthly fee. Don't charge for anything else. Just provide kick-butt service and let market share be your reward. Everyone wins. Customers can concentrate on making calls, and carriers can concentrate on making money. I'll give my US$200-a-month cellular account to the first carrier who tries it.